The Telecom Regulatory Authority of India?s (TRAI) recommendations on spectrum pricing continue to face difficulties.
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Prior to this, TRAI had recommended a minimum base price of Rs 180 billion for pan-India operations. It also recommended double of this amount as the minimum price to be paid by operators for the spectrum they currently hold. Operators have claimed that such a high spectrum price would lead to a 100 per cent increase in tariffs, which will adversely affect consumers.
As the industry expressed their concerns over these recommendations, the regulator took steps to resolve the issue.
It was to make a detailed presentation before an Empowered Group of Ministers (EGoM) on the likely impact of its recommendations on spectrum pricing on operators.
In its presentation before the EGoM, TRAI reportedly stated that its recommendations on spectrum pricing will lead to increase of Re 0.50-0.10 in mobile tariffs.
In response, the Cellular Operators Association of India (COAI) has expressed its concerns on the same and has issued a statement in this context.
The statement highlighted that TRAI, in its revised analysis submitted to the EGOM, has concluded that despite an increase of over ten fold in the price of spectrum and despite the high costs of ?Re-farming? of 900MHz spectrum; there will not be any significant impact on tariffs.
COAI said that instead, TRAI has assured the EGOM that tariffs would remain affordable, industry profitability will increase and the government revenues will grow dramatically.
?It thus appears from the TRAI impact analysis that high pricing of spectrum will lead to a win-win situation for all stakeholders. The catch however is that the TRAI assessment continues to be based on some very tenuous and unrealistic assumptions such as:
?Assumption of a dramatic and inexplicable increase in subscriber Minutes of Use in the early years, which is in contrast to the declining trend that is being witnessed in recent years;
?Continued assumption of a very aggressive increase in non-voice revenues to an astonishing 50 per cent of total revenues, which is unprecedented in any market barring Japan;
?Disregarding the fact that increased spectrum will be required (which will come at an increased cost) to support assumption of increase in non-voice services/revenues;
?Assumption of increased voice penetration with no commensurate increase in acquisition cost,
?Assumption that increase in tariffs can be sustained with no drop off in demand which is contrary to the highly price elastic demand which is an unmistakable market reality in India,
?Assumption of constant to increasing profit margins, which is again in contrast to market realities, etc.!
?It is also distressing to note that TRAI continues its non-transparent approach in not sharing the cost-model on which it has based its above conclusions. Even the current analysis dated 21-June-2012 was placed on their website only on 12-July-2012.?
COAI has also referred to an independent study of TRAI?s analysis conducted by PricewaterhouseCoopers (PwC) and has summed up the same as;
?The MOU numbers assumed by TRAI (though corrected to remove incoming minutes as was pointed out by COAI in the earlier round), are still grossly exaggerated; TRAI assumes that MoUs per subscriber would grow by 33 per cent from 321 in 2012 to 435 in 2032 whereas the industry is witness to a steady and steep declining trend over the last five years
?Unrealistic Projections for Non-Voice Revenues – as against TRAI?s estimate of 35 per cent-50 per cent of revenues coming from non-voice services, industry estimates that non voice revenues can be expected to reach about 28 per cent (as per Merrill Lynch) of the total revenue by 2032,
?TRAI has not factored in the additional spectrum that will be needed to cater to its projected voice and non-voice traffic increase
? Cost estimates appear to have been computed to deliver certain predicted profitability margins;
? There is no analysis of how the industry will finance the staggering costs of spectrum and refarming, especially in the first five or seven years, given the present leveraged state of the industry and the banking sector?s unwillingness to take on more exposure to the telecom sector;
?The full impact of Spectrum Refarming cost has not been accounted for, which would be in the range of approximately Rs 2.34 trillion
?The industry profitability parameters (EBIDTA, PBIT and ROCE calculation) are based on flawed assumptions, (see above), which paints a far more optimistic picture than warranted by market realities and trends. The PwC analysis indicates that two of the main profitability parameters, PBIT and ROCE, will remain negative for most of the 20 year period
The summary of the PwC report is attached.
